By Timothy Lutts
Last week, both my home and the Cabot office were without electricity for 42 hours, thanks to the Thursday night storm that hit New England with hurricane force winds and put perhaps a million people in the dark for at least a while.
It reminded us how wonderful electricity is.
And it made me thankful for the Internet, and for decentralized information, which made it possible for Cabot employees to get our advice out on schedule Friday while working from home.
In any case, the vision of numerous broken power lines left me wondering once again when we will be able to transcend this 19th century architecture of poles and wires that is not only vulnerable to weather but ugly to boot.
And that reminded me of the announcement just a week ago by Bloom Energy, a California start-up, of a solid-oxide fuel cell that has the potential to enable more localized power sources. You could have one in your basement, for example, or a larger one could power a subdivision.
There’s still much work to be done, and the price needs to come down, but the potential is there, and the announcement by Bloom should increase interest in the field, attracting money and competitors that will make progress come faster. I can’t wait.
In the meantime, the real progress in the energy industry lies in solar and wind, where the best companies continue to grow at a rapid pace, despite the fact that the recession has curtailed government subsidies in Spain and Germany, two countries that were previously major supporters.
But that doesn’t mean these companies are great investments. Consider First Solar.
Back in 2007, First Solar (FSLR) was our biggest winner and the company is still king of the hill in many ways. In 2009, its revenues grew 66% to top $2 billion. Earnings were $7.53 per share, up 78% from 2008.
And how did FSLR perform in 2009? The stock finished right where it started, at 135. Today it’s still in the same neighborhood, and a stock that’s going sideways is not attractive to me.
But why does a company growing this fast have a stock that’s not going up?
In short, because investors previously expected even faster growth. First Solar’s growth is actually decelerating at a rapid rate now. The company has gone from being a Formula One race car (sales grew 273% in 2007) to a BMW 3-Series, and the stock’s price is still adjusting to the change. I recommend that you continue to avoid it until investors put the stock in an uptrend again.
And note this: It’s not just because First Solar was the leader that it’s being held down now. The vast majority of stocks in the solar power industry look even worse because their businesses are doing less well and because money is leaving the sector.
On a side note, on my survey of the alternative energy sector, I ran into old friend USEC Inc. (USU), which operates the only uranium enrichment facility in the U.S. (in Paducah, Kentucky). It’s the executive agent for Megatons to Megawatts, the U.S. government’s program for converting uranium from Russian warheads into enriched uranium for electric utilities. And it’s deploying the American Centrifuge, a next-generation enrichment technology.
But the business isn’t growing, and the stock hasn’t been in a real uptrend since early 2007. Even President Obama’s mention of nuclear power in his State of the Union Address failed to strike a spark. To me, that’s reason enough to ignore it.
So which alternative energy stocks do I like? None today. I had high hopes for EnerNOC (ENOC) recently, but the market told me I was wrong. Bottom line, most alternative energy stocks are not attractive today. (When they are, you’ll read about it first in Cabot Green Investor, our earth-friendly but still profit-minded publication that is currently winning with some revolutionary new technology stocks.)
What I do like today are stocks of fast-growing technology companies like NetLogic Microsystems (NETL), which earned a spot in Cabot Top Ten Report a few weeks ago. NetLogic falls into the classic semiconductor chip category, which to me means that in the right bull market it can make you money really fast … and that when the uptrend ends you’ve got to jump out.
Well, the company had a blowout fourth quarter earnings report–sales up 125% to $70 million and earnings up 90% to $0.59 per share–after which investors gapped the stock up to new highs on big volume. And that earned it an appearance in Cabot Top Ten Report, where editor Michael Cintolo wrote,
NETL hit 45 back in the first half of 2006, and didn’t make meaningful progress above that level until recently. So the stock has a very long launching pad to work from, which makes last week’s earnings-induced rally more promising. NETL trades just 500,000 shares per day on average, so volatility can be extreme, but we like the prospects and the stock’s more recent four-month rest period. Try to buy a little on weakness or as the stock tightens up.
When he wrote that, the stock was trading at 48, and the stock traded at 48 for the next three days, “tightening up,” which tells you institutions are accumulating. And then it launched ahead, in a climb that took it up to 57 today. I still think the future is bright, but if you like it try to buy on a normal correction of a couple points.